PLANS by Birmingham City Council to open its own £500 million municipal bank have been scrapped.

Council bosses have realised the scheme would be too costly and too difficult to set up.

Instead, the authority may ask one of the high street banks to offer “council-branded” mortgages, deposit and current accounts.

City leader Mike Whitby raised the possibility before Christmas of the municipal bank returning to Birmingham for the first time since the mid-1980s.

He said it would offer security to Brummies during the financial turmoil affecting the world’s financial institutions.

But inquiries have shown that the council would have to wade through a mass of red tape and secure an Act of Parliament to get the bank underway.

The huge cost of setting up a bank, at £½-billion, has also contributed to a re-think.

Council chief executive Stephen Hughes said re-tendering the contract for the city’s general banking services next year could provide a golden opportunity to bring in a high street banking partner who might be able to offer “municipal accounts” to the people of Birmingham.

The Co-operative Bank, which currently has a five-year agreement to act as the council’s banker is to have its contract extended until April 2010.

The decision will create a breathing space while the council looks to offer a lucrative long-term deal to new tenderers.

Mr Hughes issued a warning to critics who fear the city is moving too slowly.

He cautioned that it was essential to “walk before we can run”.

Mr Hughes added: “In my view the best way to take this forward without it costing us a lot of money is to do it through the banking contract.

“We would ask whoever is providing our banking services to produce products which we can use in a municipal context.

“My approach is one of caution and we are taking appropriate due diligence. We recognise the scale of the potential risk we are undertaking.

“But we also recognise there is a gap in the market at the moment and it is something we should be exploring.”

Talks are also under way to see whether the council can work more closely with Birmingham’s credit unions.